Is Seagate’s Stock a Buy Now?

With shares of Seagate Technology Public Limited Company (NASDAQ:STX) trading at around $35.85, is STX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Seagate’s stock dropped around 5 percent last night, which was mostly due to rising costs and poor guidance. In regards to guidance, Q3 revenue is expected to be between $3.25 and $3.45 billion. The street consensus was for $3.48 billion. As far as reported Q2 earnings are concerned, the results were a little better than expected. Q2 EPS came in at $1.30 versus an expectation of $1.28. Revenue came in at $3.7 billion versus an expectation of $3.5 billion. Seagate shipped 58 million disk drive units. As we all know, Wall Street isn’t about “What have you done for me lately?” but “What will you do for me in the near future?”

CEO Steve Luczo stated that the company will manage business conservatively based on demand. In other words, demand is subpar at the moment. He also stated that the company will focus on profitability. A CEO making this statement is no different than the average working individual stating that he will put pants on in the morning. So, that statement is a non-factor. A final note related to Mr. Luczo’s statements is that Seagate will effectively invest for market leadership in storage for mobility, cloud, and open source.

In related news, Seagate is investing $40 million into Virident, a storage class memory specialist company. This will allow Seagate to offer a complete line of flash-based products to OEM & distribution partners. The risk/reward ratio on this deal is good.

Let’s take a look at some important numbers for Seagate before forming an opinion on the potential direction of the stock price…